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Can lender attempt to collect after issuing 1099C

Discussion in 'Foreclosure Laws' started by SoCalresident, Apr 30, 2010.

  1. SoCalresident

    SoCalresident LoanSafe Member

    <!-- google_ad_section_start -->My house was foreclosed recently in California, and before the actual foreclosure, the bank which had my second loan sent me the loan forgiveness letter (1099), and a few days later they sent me another 1099 stating that they have forgiven the loan and would not be reporting to the IRS, so I also do not need to do so.

    It was after 4 weeks of this letter, that my house was foreclosed, which was also a surprise to me, as we were in a process of short sale, and the bank had approved the offer,................... any ways...........

    Now after several weeks of foreclosure, I got a call from the bank saying that I owe them the money for second loan (this was not a purchase loan). I was shocked, and told them that was already settled. I have the 1099 from the bank.

    I am confused, can the bank legally do that after settling the loan?
    What should I do now.
  2. amiesheikh

    amiesheikh LoanSafe Member

    If they in fact sent you a 1099 c, which is a cancellation of debt then no they cannot come after you for a deficiency judgement. They are probably trying to see if they can trick you into paying them before tax time rolls around. They can do one or the other (1099c or deficiency judgement) but not both.

    You said in your post that they sent a second 1099 which sounded like it tried to cancel out the first one they sent? I never heard of that before. I don't think that's allowed. I would call the IRS on them.
  3. Kate1976

    Kate1976 LoanSafe Member

    Hi there guys well hes one for you then i live in the UK and the BAC issued a 1099c when my house in florida foreclosed. The fmv is greater than the debt cancelled by 28cent. ,! 3 years on a third party uk debt collector has issued bankrupty proceedings against me in the uk, they have been instructed by a third part collector in florida!! Im worrying big time as they have threatened me by saying they will make me bankrupt and take my uk house away. Can anyone help or is it pretty much the same answers on this thread....... Thank you
  4. Ready2Run

    Ready2Run LoanSafe Member

    I don't know about in the UK but I really doubt that a debt collector can issue a bankruptcy against you. You have to file for the bankruptcy yourself. It sounds like a DC's normal scare tactics to me. But if I'm reading this correctly and you owe $0.28 ???? Why don't you just pay them. :)
  5. TomEason

    TomEason LoanSafe Guide Staff Member

    Ready2Run
    Thanks for your post. However, U.S. bankruptcy law has always allowed creditors to file an involuntary BK against the debtor. And, I might add, this kind of BK is truly a nightmare, as there is no previous planning by the bankruptee. That bankrupt person most often feels truly victimized.
  6. Ready2Run

    Ready2Run LoanSafe Member

    WOW!!! Well that's all I can say at this point just wow. I never knew or even imagined this was possible.

    Hats off to you again Tom. I have once again learned something new.
  7. Kate1976

    Kate1976 LoanSafe Member

    Hi there thank you for fast reply, i dont really understand to much about all this as alot of the information i have come across is all different!!!! Yes you are reading it right, the fig of cancelled debt says $157,648.00 and the fmv fig says $157,646.28 . The 1099c is a 2008 issue. The CA say i owe approx $88,000 , im so confused i just cant seem to get a 100% answer, or find some kind of written law explaining it all. Thanks again guys.
  8. Francie

    Francie LoanSafe Member

    The first thing you need to do, just so as not to let it go past some deadline, is to write - never anything verbal - the collector and collector's agent that the debt is not valid and they must prove the validity. There's a better term but I can't come up with it just now. All too often, people let it go and the 30 day deadline passes after which the collector asserts they have the right to "assume the validity". Yes, it's indeed a pity that the victim has to spend time and money to deal with the mistakes of others.

    Next thing is to download publication 4681 from the irs.gov website. Page 11 explains a lot regarding foreclosures, deficiencies and reporting.

    Was that figure of $157k the sale price of the home or the canceled debt? Was the FMV figure theirs on the 1099-C?

    A foreclosure is treated as a sale and usually is reported on a 1099-A. The sale price is then used in the capital gains and losses section to determine the profit or loss. That's between you and IRS. If the note exceeds the FMV, the difference is a deficiency which if cancelled is treated as ordinary income and you must be issued a 1099-C if that amount exceeds $600 US. If there is a deficiency and it is cancelled, the lender can choose to issue only a 1099-C but with all the information correctly filled out. They seem to have missed on the last part.

    Where did that $88000. come from? Any official source or just the letter from the collector. This has become a common situation called "zombie debt" in which collectors buy the notes and the debt for pennies on the dollar and attempt to collect. They will use a variety of scare tactics, most of which illegal or only marginally legal.

    Key to your issue is that 1099. As long as the debt does not exceed the FMV, there is no deficiency under federal law. However, this has been a subject of much discussion: the 1099 and its effect in state foreclosure and associated deficiency hearing procedures. Florida is a judicial foreclosure state and the hearing for foreclosure and deficiency are held separately. The judge could award a deficiency if presented with an appraisal significantly less than the sale value of the property. The argument becomes the 1099 to be issued and whether the "cancellation" of the remaining debt precludes a deficiency judgment.

    Regarding the appraisal. Get the "Just Market" figure from the county property appraiser's office. That's at least an "official" figure. Anyone can get an appraisal over a wide span of values, depending what's needed. I like official.

    Did you or a representative attend the foreclosure hearing or deficiency hearing or did you just let it go by default? (Rhetorical question, no need to answer publicly, just consider). I'm trying to determine where that $88000. figure came from. Read again the 1099 along with that pub. I referenced above.

    It is important you notify the collector that the debt is invalid and clearly erroneous. Any such threats as forcing bankruptcy should be reported to the Federal Trade Commission under the Fair Debt Collection practices act. They have a website. It's amazing how belligerent organizations become so cooperative ("Oh, just a misunderstanding, why didn't you just contact us?") when they get the letter on the official letterhead. If the 1099 is wrong, you need to contact BoA and, if they won' cooperate, the Controller of the Currency and IRS. The department at BoA will never be lonely.
  9. Francie

    Francie LoanSafe Member


    Actually, they can. This is why it is unwise even to breathe the word "bankruptcy" to a creditor in an attempt to be clever in a negotiation. There are what are called "Acts of Bankruptcy" which, if done by a debtor, can be used by creditors to force a bankruptcy. Basically (again, assuming you are a debtor) if you transfer assets to hide them (fraudulent transfer) from creditors; transfer assets in a preferential fashion - one creditor preferred over another; or, (this is where one gets into trouble threatening BK) admitting in writing that one can't pay and is willing to BK. A creditor has four months from the act in which to file a petition to force a bankruptcy. To complicate matters further, some states have opted out of the basic federal procedures and substituted some of their own, one of which may be failure to pay obligations over a specified amount - local variations.

    UK is even simpler for a BK but there has to be a hearing during which the defendant can assert that person is not bankrupt and that the petition is fraudulent. Assuming the details we've been given are the whole story, the latter is easily provable. I don'[t know if the UK uses a time limit as we do - there have been major changes in the last decade since I last heard about UK bankruptcy procedures . Hopefully they do, in which case it's too late to file.
  10. Francie

    Francie LoanSafe Member

    They likely sent an amended 1099. The response from the IRS upon inquiry would be that one needs to contact the issuer. The real key would be the note vs. the market value of the property. In my view, the county assessment (that is, without the prop 13(?)caps) is a preferred one: appraisals can vary and can be "managed" according to the purpose.
  11. Kate1976

    Kate1976 LoanSafe Member

    Hi there thank you again for a fast reply. Right i will try and answer questions to the best of my know how.Yes all deadlines were metThe third party CA based in florida kissimmee first contacted me via letter demanding $78103,40 due to a shortfall in mortgage after house foreclosed, the letter was threating, demanding payment or they will make me bankrupt in UK and will take my family home away frome me.The $157k fig was the cancelled debt on 1099cIm not where the fig came from for the FMVThe recent FMV fig done last month was approx $114000i never got a 1099a just a 1099cThe 1099c is issued from the BAC Florida Bank NOT from third partyIve spoken with the IRS and they are not intrested as they say that there isnt any income to be taxed onThe $88k fig was a appox fig it is infact the fig they are try to CA from me the $78k one aboveI attended the foreclosure by telephone, all for about 10 minsAny more info you need please just ask, and i thank you in advance for your replies
  12. Francie

    Francie LoanSafe Member

    OK. The first thing is to download that pub 4681 I mentioned. Refer to page 15 which contains an example of a 1099-c for a foreclosure and a worksheet for figuring taxes. Note the figures. The note was $25k more than the FMV. So, box 2 of the 1099 contained the $25k. as the forgiven amount. Check your 1099: it sounds like yours says $157k., a likely error to begin with.

    A question (again, for you to answer for yourself, not necessarily for publication): what was the debt amount? Not the beginning mortgage but the balance at the time of foreclosure, that is, the payoff amount? If that was $157k., then you are indeed on solid ground. Forget the current FMV of the home; the figure you want is that at the time of foreclosure. That is available from the property appraiser's office in the county where you lived. Or, it would be in the "TRIM" notice or the tax bill for that year. If that confirms the $157k figure on the 1099 (which is what you rely on anyway), then there can not be a shortfall.

    Quite simply, if there is n o difference between the note balance and the FMV, there is no debt to forgive. Indeed, even the 1099 you have says that $157k is cancelled; if the note balance at the time was $157k, then there is prima facie no deficiency remaining. It's also possible the bank re-sold the house for $80k less and wants to get you to make it up. Not so in a foreclosure.

    Actually, it sounds more and more like a scamster is involved. Look over that pub and the figures on the note remaining at time of foreclosure. If they confirm what I said go to 800helpfla.com, go down the left hand column to the "file a complaint" tab and explain the situation: foreclosed, 1099 figures, note payoff value and that this firm is coming after you. Though you are in the UK, the property was in FL and the scamster is in FL. The Dept. of Ag handles the consumer complaints and routes them to the proper state agency, including the States Attorney if appropriate. (sounds like it is). I wonder what happened in the deficiency hearing and what lies were told. Also, go to sunbiz.org and plug your name into the name search for liens.
  13. TomEason

    TomEason LoanSafe Guide Staff Member

    Kate1976
    Thanks for your posts. Here's the deal; I'll make it real simple for you. I've always recommended that the taxpayer (TP), ignore lender 1099s and do what the TP and his/her tax person deem appropriate. The lender is required under IRC regs to issue the form, but the issued forms are wrong as often as they're correct! While it is an IRS form, the issuance by a lender lacks the gravitas that would be present if issued by the IRS. The forms are generated by the lender's system and based on entries made by a low wage data entry clerk. You can write the lender a letter stating why it's in error, but don't wait for a reply because you won't likely get one. Keep a copy of the letter with your tax filing so, in case you ever get audited for that tax year, you can show good intent in having it corrected. Other than that, don't worry about it!
  14. Kate1976

    Kate1976 LoanSafe Member

    Hi there guys thank you so far for all your help. Ok ive looked at pub 4681, just to let you know the 1099c was issed in 2008. So it looks a little different to the 2010 form.! The debt amount when foreclosed, im a little un sure where to find this, you mention a TRIM but im not 100% sure what that is, i have an idea tho as ive been looking on the net, is it the form titled "end of year notice of proposed property taxes and proposed or adopted non-advalorem assessments" ? If so what fig do you want me to look at?And what year do i need to look at? Is it the year 2008 when it foreclosed or the year 2011 they are trying to sue me ?Thank you again guys, you are being very helpfull
  15. Kate1976

    Kate1976 LoanSafe Member

    Oh sorry i forgot to mention i looked on the sunbiz.org site and searched under my name and it didnt show anything !!!
  16. Francie

    Francie LoanSafe Member

    Good work! Not showing up on the bizrate site is a good thing. In order to enforce a judgement the creditor has to register it with the state before attempting to seize property. Another place to look is the county clerk's office (in which county you had the property). There is a case lookup on any of them but I couldn't begin to give you much detail. Basically, go to a record search tab or heading, which will then ask for a name to search for. Plug in your name and cases for anyone with that name will show up as line items. You should see your foreclosure proceedings as line items if you are on the right track. Google for the site though it usually is name of county<county><name of="" county="">clerk.org .

    The TRIM is a notice one receives every year from the tax collector; the actual tax bill comes a few months later (NOV). Even though you likely paid your tax through escrow, you would have got a copy. Don't know if you kept them but I usually keep for a couple of years (IRS - 2 years for actual doc.) If you don't have one, not a real problem. This time it's the property appraiser's office. Again, google. It's usually the <county abbreviation="">pao.org but not always. Do a database search by address and yours will show up. The record of appraisals will be line items. The information is the same in all counties but can be physically different in presentation. This is where you can see the county assessment. You always want the figures for the year in which everything took place (the close of the transaction)Should be that $157k.

    As far as the 1099 and the instructions, the form is physically different but the box numbers are the same. Box 2 is the forgiven amount, which is the issue. One can download a 4681 from tax year 2008 from the irs.gov site. The instructions are the same.

    What you really want to do first is check with one of the UK bankruptcy lawyer sites. I'm sure a question can be answered free if it does not pertain to a specific case but a general regulation. What you want to know is if there is a time limit within which a creditor has to file a petition for bankruptcy after the alleged Act of Bankruptcy. I do not see as you have committed any of the acts of bankruptcy though the laws have changed in the UK (I am NOT a lawyer). In the US, a creditor has 4 month from the alleged act to file the petition. I would think the UK would be similar, differing only in technical issues. If you have a time limit, then you truly are home free as far as your major worry. They can't force involuntary bankruptcy since the issue took place 3 years ago.

    Tom Eason raises a very important issue of general interest and discussed in this forum as well as others: the legal effect of a 1099-C. He uses the term "lacks gravity..." which is of paramount importance. Many have argued that the 1099-C, showing debt as cancelled or forgiven (term in some instructions) absolutely precludes the creditor from filing suit. I can't see it, though I personally would proceed as if it were. There is no statute I can find on a state level (where the suit would take place) that specifically says a 1099-C canceling debt means a deficiency does not exist. The 1099-C cancellation only has legal effect under the tax code and in tax court.

    That said, I would expect that the introduction of a 1099-C into evidence in a deficiency hearing, showing that the lender or his authorized agent has called the debt cancelled on an official form, even if for another jurisdiction, the misstatement of which would be subject to sanction. If one tells fibs to the IRS, one will be sorry and will never be lonely. The trouble is, it depends on the judge; one gets as much justice as one can afford to pay for.

    I would love to see a post, especially involving a Florida court, which could state that a 1099-C cancellation was accepted as evidence a debt no longer exists.</county></name></county>
  17. Kate1976

    Kate1976 LoanSafe Member

    Hi there francie is it possible to contact you other than on here ? Thank you
  18. Cat Damiano

    Cat Damiano Mortgage Wars

    Kate,


    We do not allow personal contact information to be posted on the forum as it elevates the level of scammers preying on the members here which is the same reason why we do not enable the private messaging feature it is also against the TOS of the forum to post personal contact information in the posts. Please keep your thread going by posting your questions and progress here as it helps other members in similar situations.
  19. Kate1976

    Kate1976 LoanSafe Member

    Hi there guys , sorry about asking for contact details. OK where do i start. Ive been to meet a florida law attorney today, and also seems to unfortantly agree that the 1099c wont help.! He says it looks like they are sueing on the mortgage note itself, we are now trying to find cases that have been successfull in court in favour of the defendant. As they have provided a success case in the lenders favour, but this success was in Pennsilvania NOT florida. But they are standing thier ground with this case !! So really im still no further. Again any help will be really helpfull, anything .. Please im so running out of options. Ive also found out that all these court cases are pretty much with BAC Bank of Florida, and any cases to do with BoA dont seem to have much luck as it seems they dont even go after the suspected shortfall............... Thanks again
  20. Francie

    Francie LoanSafe Member

    It sounds like they had the deficiency hearing and are now trying to enforce it. A creditor has 5 years to sue for the deficiency but it sounds like they already have done and this new holder is trying to collect. Did you or a representative attend the ORIGINAL deficiency hearing - the one by the same creditor who foreclosed? If not, then the judge found against you by default and basically let the creditor have their way. Another possibility is it just hung around and this new "group of investors" bought the note and is now trying to sue on it.

    A couple of things jump out.

    1. Have the lawyer find out the date of the original deficiency hearing if one took place.

    2. What is the date of the 1099-c you have (if received in, say, 2009, that's sufficient)

    If the 1099 was sent after any hearing, then it should have reflected the result, which should in itself be a matter of record. If no deficiency was granted, there's an important piece of evidence. Another possibility is the bank sold the condo at auction and used the sale price as the "fair market value" amount - this is permissible, however, you should have a 1099 reflecting that. In other words, if the note was $157.k, and the bank (or Sheriff, at auction) sold it at $80.k, then there would be a shortfall of $77K. However, at a hearing subsequent, you could have challenged that value with your own appraisal or the county assessment.

    Your attorney needs to find out if the new parasite already has a judgment or is just making demands. If they do not have a court judgment, then they can't do anything until they do. Then, your attorney needs to present that 1099-C from the original creditor as evidence the creditor intended and did in fact cancel/forgive the debt. That, in my view, is its value, evidence of intent and fact. If they have a judgment, then you need a very aggressive attorney to deal with the court which issued the judgment to get it set aside (a REAL pain) based on fraudulent intent and possible perjury - the attorney would have to do a lot of research on the original case and hearing.

    Remember that a mortgage consists of two parts: a lien and a promissory note. It is that promissory note that is the thorn. Your attorney has to find out what happened with it.

    Another possibility to investigate, which depends to great extent on your financial assets in the US, is whether a US bankruptcy 7 would migrate to the UK or if the creditor would have to sue you all over again in the UK. Depending on the answers to that, you could either BK in the US or, if they sued you in the UK, defend the suit using the intent to forgive the debt as shown in the 1099.

    Have your attorney "check the status or record" of your mortgage with the foreclosing creditor. See what it says with the intent of corroborating or supporting the cancellation provided by the 1099. You might even have as simple a case of an employee not canceling out a note as they should have. I have a situation like that "sleeping" right now. I had a short sale and the letter indicated the mortgage satisfaction would be sent. The company was in trouble and never did and the note is still recorded without an offsetting cancellation (I DID get a 1099-C indicating the cancellation/forgiveness). If ever a zombie debt collection agency comes after me the defense will be an aggressive offense: suit against the creditor for breach of contract; suit against the collector for fraud as well as trying to bring the state's attorney into it for fraud. But, I have the paperwork for it.

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